Monday, June 23, 2014

Libertarians are remembering the importance of good government

At Bloomberg, I express hope that maybe libertarians are remembering that efficient government, not small government, is important for a nation's prosperity:

“War made the state, and the state made war,” historian Charles Tilly famously wrote. Why would kings and chieftains build roads and schools and fair legal systems for their people, or give their people property rights, when they could just plunder and pillage instead? Tilly’s answer: because of war. More productive citizens mean a richer country and more war-fighting potential. Gross domestic product wins wars and keeps the local top dogs on top...

I can think of even more examples. Most industrialized nations built their railroad systems to carry troops and equipment back and forth in war -- in the U.S., it was the Civil War that spurred a flurry of railroad-building...

21 comments:

I'm of the opinion congress should do as little as possible, letting the free market run on its own – only to intervene during crisis such as after 911 and in 2008, to undo unnecessary regulation such as Glass–Steagall’s 1999 repeal, to lower taxes, to raise the debt ceiling, and to control entitlement spending such as Clinton’s 1996 welfare reform. This is similar to many libertarians that support the government to protect property rights and the sovereignty of nation but take a minimal approach to everything else .

There is no free market. All markets operate according to rules. Open market rules are enforced by governments.Black market rules are enforced by gangs and mafiosi.

Humans have never thrived as individuals.Our entire evolutionary history is that of a social animal.

Property rights are granted by governments. "There is no such thing as property without government." WT Sherman, Sept 7, 1863Sherman's March to the Sea proved his point.

Libertarians only think they are looking at a free market. Instead they are looking at a market with rules, but that market is rigged.The hands that write the market rules are hidden from sight. The market rules are written by the Malefactors of Great Wealth to the unfair benefit of wealthy special interests and the detriment of the rest of us.The Malefactors try to trick people that the market rules are natural, the best possible or other such non-sense in order to lock unfair rules that work to their favor in place. Malefactors seek to prevent changes in the rules that would be more fair but operate at the expense of the wealthy special interests. Libertarians for the most part are well to do legacies who seek to protect their advantage or useful idiots in the class war that the Malefactors of Great Wealth wage against the rest of us.

There is no profit in a free market (competition in a free market drives profits to zero). Capitalism is therefore the process of creating and exploiting market failures to make a profit, usually to the detriment of consumers.

Redwood, no, free markets do not drive profits to zero. Please study the issue more. They drive profits to an equilibrium in accordance with their risk (which is broadly the ease of entry). Higher risks tend to have higher returns.

Innovation is a high-risk venture, and so successful innovations tend to have high profit margins; but being a second mover is lower risk (and lower reward). Iterate until the relative capital-at-riskiness of the innovation is more or less in balance with the rest of the economy. This is not zero.

Here was a market failure: I could not phone home while camping. This product was not on offer, yet I wanted it.

How exactly has my iPhone been to my detriment? I chose to buy it. I did not have to buy it, you know. I don't usually do things that are to my detriment.

The iPhone's profits are largely the result of Apple's monopoly power through patents, trademarks on the brand names, and the tight coupling to the App Store. In a true free market, anyone would be permitted to manufacture and sell a true iPhone clone and compete directly against the iPhone, introducing price competition. (A real clone, capable of running iOS apps, installing from the App Store, syncing with iTunes, etc. Android is sufficiently different that it is not a clone). These monopoly powers is one of the kinds of market failures that essentially all companies seek to create and exploit. The consumer loses to the extent that they pay higher prices for an iPhone than they would in a free market.

It's true that the ability to sell iPhone clones would not drive the iPhone market's profit all the way to zero. There are other barriers to entry, such as the cost of building/retooling factories. These too are market failures, since they prevent fully free competition. Ultimately, the fewer barriers to entry - i.e. the more free the market - the less profit is available.

Are there copyright laws in a completely free market? If there are, will they give the original copyright holder unlimited right to control how the copy is used even after it is acquired by the user? Will these laws make phone unlocking illegal? Will there be patents? How will the state arbitrate between independent inventors with overlapping ideas? -Which may comprise the bulk of commercially useful patents, if experience is any guide.

Good column. Your thought about China is correct. China has no compunction against large government programs that expand their economy and take market share from other countries too idealistic to use their own government to fight back and compete.

However, Libertarianism is based on assuming the current state of affairs and assuming current public goods and services without crediting the government for making those things possible. Libertarianism could not exist without a large dose of history denial.

Noah, Everybody can agree on "good government", but unfortunately that's just tautology. The problem is that not everybody agrees on what is "good".

What libertarians appear to want (in an economic sense, anyway, ignoring that most libertarians only want their constitutional rights enforced), is government discipline and restraint, not more effective provision of public goods. This "libertarians want no fire departments!" is pure bullpucky.

In order to have restraint and discipline, you need pressure. In the absence of the soviet union, the only restraining pressure put on the US federal government was Norquist et al. Ye shall know them by their fruits.

Don't demonize those who say that the king is providing thistles and not figs, because insofar as government is bad, it does need to be “drowned in a bathtub.” We can all agree on this, but unfortunately there are some who benefit from bad government: this may be you, it may be me.

Small government is a reliable way of getting toward good government because there is a "networked effect" of bad-ness. One government department will tell a rancher to do one thing, while another tells to do another thing, and you cannot get a straight answer from a third: the multiplicity (all backed by equal law) itself creates bad outcomes.

In short, the network of overlapping big-ness creates its own bad-ness. Shrink government, and shrink the networked-system-effect of bad government. Small is more likely to be clear, responsive, and workable.

What happens when the size and scope of the Federal Government is greatly reduced? Do all the monied interests just close up shop and take their bags of money home? I wouldn't bet on it. They will move to the state or local level where they can capture a school board or zoning board far more easily than a Congress under the kleig lights of national media.

Here in Alabama, a former governor, the mayor of its largest city and the CEO of its most "successful" healthcare corporation are all serving in prison. A libertarian may claim that small government applied at all levels would reduce corruption at all levels but I can't see men like the Koch brothers abandoning attempts to twist the political and economic environment to their benefit.

Oh, come on, the tool of big money is big government. Who exactly watches these wonderful watchmen you speak of?

The Feds have the most dangerous of monopolies: at least business can pack up and move out of Alabama to a more hospitable environment if it gets too bad: witness Detroit and California.

The point is that you - yourself - and I - have huge multiples of more political power to fight whomsoever you please for the status of your local school board or zoning board. Some 1/10,000 call it. More, if you are highly motivated.

No individual can hope to influence the federal government. You have no power to affect DC: 1/320,000,000 at best. This is where big money whales swim, and your interests as plankton, are, well, nil. Sorry.

However, you, kind sir, can be a whale on your local school board. I suggest you get out there and do so! Become that small government! Make it good!

The Money Quote:Contemporary conservatism is first and foremost about shrinking the size and reach of the federal government. This mission, let us be clear, is an ideological one. It does not emerge out of an attempt to solve real-world problems, such as managing increasing deficits or finding revenue to pay for entitlements built into the structure of federal legislation. It stems, rather, from the libertarian conviction, repeated endlessly by George W. Bush, that the money government collects in order to carry out its business properly belongs to the people themselves. One thought, and one thought only, guided Bush and his Republican allies since they assumed power in the wake of Bush vs. Gore: taxes must be cut, and the more they are cut--especially in ways benefiting the rich--the better.

But like all politicians, conservatives, once in office, find themselves under constant pressure from constituents to use government to improve their lives. This puts conservatives in the awkward position of managing government agencies whose missions--indeed, whose very existence--they believe to be illegitimate. Contemporary conservatism is a walking contradiction. Unable to shrink government but unwilling to improve it, conservatives attempt to split the difference, expanding government for political gain, but always in ways that validate their disregard for the very thing they are expanding. The end result is not just bigger government, but more incompetent government.

Actually, the flurry of railroad building was a result of the collapse of the Confederacy. The North wanted to build railroads as soon as the technology was feasible, but the South resisted, possibly worried that rail might weaken their slave monopoly or something. Who knows? These are the same guys as our Republicans in Congress today. After the Civil War, the North got its way for a while, and that included massive subsidies for railroads.I'll admit that railroads could be critical during war time, but the primary reason to build them was economic unification and increased economic efficiency. Germany relied on its rail system in the Franco-Prussian War, but it built its rail system as part of the effort of turning Germany into a centralized state. England, if I remember correctly, was a naval power. Its railroads, like its earlier canal system. were about internal commerce.I think war fighting is only part of the reason for a government to want to improve the lot of its citizens. There is also the matter of keeping down civil unrest. The Soviet Union was terrified of raising living standards in Russia proper, lest it face uppity workers in its workers' paradise. Russian living standards were lower than in most of the satellite SSRs and their European colonies. Those jurisdictions could afford to experiment with raising living standards, because they could rely on the Russian Army if they went too far. Russia couldn't.Look at China. For all the corruption, repression and absolute rule in China, there is more going on there than just a small aristocracy trying to get rich. China has had that in the past, and the European rulers were no better. The modern Chinese government actually does want to raise living standards, at least somewhat. The move to urbanization might be brutal and wasteful, but life in a urban block in a backwater city is better for most people than rural poverty. If it was just about raising an army, the Chinese government could just focus on a select 100,000,000 and have ten million men at arms, but they are casting a wider net. Is it Han solidarity? I saw "Hero" too. Is it fear of an uprising? I'm sure glad I'm not riding that tiger.

There was a substantial railroad lobby prior to the Civil War. Lincoln was a railroad lawyer. Before the Civil War, arguments over location stalled the transcontinental railroad. After southern states seceded, the North had the votes to extend to northern route and built it (partly with imported labor) during the Civil War.

Congress pass much legislation that was blocked by the South. They passed the Homestead Act that assured the new lands would be settled by small farmers and large plantation would be squeezed out. Railroads were essential for supplying these new homesteaders with building and farming materials. The expansion into new territory with poor transportation infrastructure offered an opportunity for large expansion. Could railroads have been viable in the west without before the large influx of settlers?

Congress passed the Morrill Act to support land grant colleges during the Civil War in part to support the small farmers. Before the Civil War wealthy Plantation Slave owners had undue influence of policy. After Secession, that power was lost.

Regarding Peter Thiel, there's good news and there's bad news. The good news is he has discovered the value of constructive government activity. The bad news is that he no longer thinks democracy is a good idea.

"efficient government, not small government, is important for a nation's prosperity:"

Depends on what you mean by government. Do you mean laws that align incentives and enough regulatory firepower to enforce them? Or government employees? I would say a significant fraction of the inefficiency of government is a function of rules that protect government employees and labor unions, at the expense of public safety, education, or regulatory efficiency. We have EPA employees that watch porn and cannot be fired. teachers that cannot be fired let alone evaluated. We had an horrible scandal at the Baltimore CIty jail last year - 24 correctional officers indicted for smuggling drugs and having babies with gang leaders (among other things), a consequence of the Correctional Officer Bill of Rights passed a few years earlier that shielded employees from discipline. Police Unions have been fighting the use of body cameras (unsurprisingly, when police are required to carry them, excessive use of force complaints plummet). It's hard to defend ridiculous outmoded practices like keeping government pension records in an old mine in PA (see here: http://www.washingtonpost.com/sf/national/2014/03/22/sinkhole-of-bureaucracy/ )

The other problem with bureaucracies (and you run into this at large companies as well), is that the problem never seems to be solved. Managers have a strong incentive to make themselves useful.

I am fine with regs that align incentives and enough regulatory firepower to make it work. But it's a real question in my mind whether government can ever be "efficient" when work rules and lobbying prevent productivity, and shield employees from evaluation and discipline. Theory, fine. Implementation, not so much.

I thought your bloomberg article needed a little work - and then realised you were quotingtyler cowen - "Fundamental innovations such as nuclear power, the computer and the modern aircraft were all pushed along by an American government eager to defeat the Axis powers "- actually the computer (turing) and the modern aircraft (jet engine etc) was invented in the uk.

moving on to one statement you made

"Most industrialized nations built their railroad systems to carry troops and equipment back and forth in war "

Being half-way through "Why nations fail", that statement was true of russia, but otherwise - mostly trains were built to move goods and people about.

and

"But it isn't too late. As growth slows, and China becomes a more powerful and aggressive rival, maybe Americans will give up their destructive focus on fighting over the pie, and start thinking about how to make the pie bigger. "

reading on in the same book, the authors basically say that China has 'Extractive' (bad) political structures and at some point like the USSR, it will run into the buffers and stop growing or collapse into internal confilct in the elite.